Ex-Engineer's Suit Claims Hughes Hid Defects in Chips : Manufacturing: The 4 million microchips were used in a variety of defense systems. But Hughes Aircraft denied the allegations in the metallurgist's $9.6-billion suit.

A former senior staff engineer at Hughes Aircraft's division in Fullerton has filed a multibillion dollar lawsuit against the company, alleging that it covered up flaws in more than 4 million microchips installed in defense systems since 1984.

The suit, filed by former Irvine resident Michael C. Denlinger, claims that the company's actions jeopardize the nation's defense system. The suit said the allegedly flawed chips are used in a variety of defense systems and asserted that two failures in submarine-launched Advanced Capability (AD-CAP) torpedoes resulted because of the chips.

The microchips "are literally time bombs ready to go off at any minute," said Denlinger's attorney, Frank P. Barbaro.

Hughes officials denied the allegations in the suit, which was filed in June in U.S. District Court in Santa Ana and unsealed Tuesday by federal Judge Alicemarie H. Stotler.

"Most of the stuff is just fantasy," said Dan Reeder, a spokesman for Hughes' Ground Systems Group in Fullerton. "We have never had any failure of the test torpedoes due to hardware problems during any of the hundreds of runs we have gone through."

Reeder said Hughes has found two defective chips in U.S. Navy torpedoes during routine screening procedures but said he was unaware of any system failures. He said the Navy has yet to install any AD-CAP torpedoes on board any of its submarines.

The suit also said the potentially defective chips were used in the electronics system aboard the USS Vincennes, which shot down an Iranian commercial jet in 1988. The ship's radar, however, worked properly in that action showing the aircraft to be a "non-threat."

The lawsuit was filed under the federal False Claims Act, a 1986 law that divides any spoils won in court between the complainant and the U.S. government.

The suit seeks $9.6 billion in damages. Damages in false claims suits are generally treble the value of the products sold. Denlinger's attorneys claim that Hughes sold $3.2 billion in defense systems containing the microchips.

But legal experts cautioned Tuesday against placing too much importance on the size of the damages sought.

"It is so speculative at this early stage to put a dollar amount on a claim such as this that it makes it almost meaningless," said John Phillips, a Los Angeles attorney specializing in defense fraud cases.

False claims suits require the Department of Justice to decide whether it will join such actions. Such suits are typically sealed while the department investigates the charges.

Although the Justice Department is still deciding what action--if any--to take in this case, it told the court that it had completed its research. Federal officials are expected to come to some conclusion in the next 60 days, according to papers filed by the government.

Some 200 individuals have filed false claims suits against defense contractors since the law was enacted. Of those, the Justice Department has chosen to take part in 29 cases and refused to participate in 73 others. The rest are still under consideration.

Denlinger, a metallurgist, said in the suit that he made repeated warnings of alleged defects in the microchips to Hughes officials but that the warnings were mostly ignored. He claims that Hughes took a shortcut in soldering practices, causing cracks in the chips that are supposed to be air-tight in order to prevent corrosion.

Hughes officials said each and every chip has been inspected since it became aware in 1985 of a cracking problem, which they described Tuesday as "an industrywide problem." The company said it has followed government procedures in soldering the chips.

Denlinger, 49, has been in hiding since the summer because of what he said were repeated threats on his life, Barbaro said. The attorney said it was unknown who made the threats, but his client was taking them seriously.

Denlinger had worked for Hughes for a total of 14 years. His most recent position was a senior staff engineer, responsible for testing material strengths.

Hughes' Fullerton division employs 10,000 people and makes 20 different defense electronics products, including radar systems. Hughes is the largest private employer in Orange County with more than 13,000 employees at five facilities.

This is not the first suit filed against Hughes that alleges wrongdoing involving federal defense programs.

William J. Schumer, former Hughes division contracts manager for the B-2 bomber at the company's Radar Systems Group in El Segundo, filed a lawsuit in September alleging that the firm illegally overcharged the government by $50 million on four radar programs, including the system for the B-2 Stealth Bomber. The suit seeks $150 million in treble damages.

Schumer also filed another civil suit against the firm earlier this year alleging that Hughes incorrectly allocated charges between the F-18 and B-2 programs. He seeks $40 million in damages, which would increase to $120 million with treble damages.

The company has denied the charges, and the Justice Department has not joined either suit.